Will 2016 End Up Being Another 2004 or 2008?

“Is it just me or is this feeling like 2004 all over again?  We saw prices double in both 2004 and 2008 and I seriously doubt we are going to see a doubling of price in 2016 but prices will continue their upward trend at least through the end of summer.
 
The difference between 2004 and 2008 was that in 2008 steel was available just at price you may not have wanted to pay.  In 2004, from my perspective, steel was just not available to cover the market’s needs (A true shortage).  There was more panic in 2004 vs 2008.  Mills usually had their order books only open for a few days then closed for the balance of the month.  Imports were more limited in 2004 to the point of being non-existent.

My feeling is that if the current conditions go on for another 30-60 days we are going to have the same conditions as 2004.  We are not there yet but believe we could be headed in that direction.”

Yesterday, the president of a medium sized service center who earlier this week had told SMU there we no signs of disappointed customers, called us to advise that had changed and now they were trying to figure out what to do about it (no quote or quote?).

In the afternoon we got a call from a former end user customer from our publisher’s steel sales days who told us they could not get any of their foreign suppliers to even quote…

We got the same information from a unique distributor who told us they were having to be careful doling out their unsold inventories because they don’t know if they can buy any foreign (or any steel for that matter) to replace the tons.

From our perspective (SMU) having lived through both 2004 and 2008, it does feel eerily similar to what we experienced back then. Prices moved on an almost daily basis. What we haven’t seen (and don’t expect unless there is an unscheduled shut down of a mill) is the cancellation of existing orders or repricing of existing orders. However, we are early in the process so we will need to follow developments as they occur.

The market is now “protected” – what we mean by that is the dumping suits have cut off a number of the major foreign suppliers and the replacement countries do not have the ability to provide the tonnage needed should there be a surge in demand.

Demand is not as strong as what existed in 2004 and the first half 2008 (second half the wings fell off). One concern we have is the amount of steel China could pump into the market should the country restart a large portion of the mills that were idled when prices dropped last year. One item to watch is Turkish scrap pricing. If the Chinese want to push out cheap tons one of the easiest ways is to sell billet to the Turkish mills. SMU will keep our eyes on Chinese billet offers and scrap prices and we will advise our readers.

Many buyers are complacent – either they are non-believers in prices continuing to go higher or they are inexperienced having never been through a tight market before – both a bullish for prices to continue to rise. When everybody jumps in and buys heavy that is the time to reconsider what you are doing to protect yourself. What SMU will be doing is looking for signs of an inventory build for non-contract customers. We will be listening for stories of non-traditional service centers all of a sudden selling into markets they normally do not service. Again, we will share what we learn with our member companies.

If you have any thoughts on the subject we would love to hear from you: info@SteelMarketUpdate.com